How Transitioning to Retirement Works

Once you reach a certain age, you can use a transition to retirement strategy to continue to work while accessing some of the money in your super fund – here’s how it works.

Under the current rules, once you reach your ‘superannuation preservation age’ (between 55 and 60, depending on when you were born) you can reduce the number of hours you work but continue to supplement your income by accessing a limited amount of super without retiring. This is known as ‘transition to retirement’.

How does transition to retirement work?

Some people choose to use a transition to retirement (TTR) strategy to save tax in the lead up to retirement by continuing to work full-time and boosting their concessional super contributions, while others use it to reduce their work hours but maintain their income.

In order to use the transition to retirement rules, you’ll need to set up a ‘non-commutable’ TTR income stream. A non-commutable income stream is simply one that can’t be converted into a lump sum, but instead pays regular payments. You can use all or part of your current superannuation balance to start the TTR and must withdraw between four and 10% of your TTR account balance each financial year.

Your employer still pays superannuation guarantee and any other relevant contribution (such as salary sacrifice amounts) into your normal superannuation account, so your superannuation savings continue to grow as long as you work. Of course, there’s a risk that your overall superannuation balance will fall if your TTR income stream is more than your superannuation contributions.

What is the preservation age?

Your preservation age will differ depending on when you were born. Here are the various preservation ages as of time of writing.

How might my TTR pension be taxed?

ASIC’s MoneySmart website advises that any withdrawals you make before the age of 60 will be taxed at your marginal tax rate, but also attract a 15% tax offset. The site outlines that once you reach the age of 60, all withdrawals made are generally tax-free. Investment earnings within your super account are taxed at 15%.

The following table contains details of the superannuation funds rated by Canstar based on someone aged 30-39. This table has been sorted by three-year performance (highest to lowest).

Please note that the performance information shown in the table is for the investment option used by Canstar in rating of the superannuation product.

To view the past performance of all super funds, rated by Canstar, use our comparison tool:

Whether life insurance you may have through your super fund will be affected

Whether or not you’d prefer to continue working fulltime until retirement age and retire outright with an account-based pension rather than transitioning with a TTR pension

Your super balance: if it’s on the lower side, you might want to consider leaving it alone for a while so you can:

Contribute more to it before you start withdrawing from it

Allow more time for your fund’s asset investments to earn money

How long your current super balance will last once you retire

If you’ve hit retirement age (65), you can already access your super;,so you may not need a TTR strategy

It’s also important to remember setting up a TTR pension will potentially result in less money in retirement through your super, which could influence your lifestyle when you retire permanently.

While changes to TTR pensions implemented on 1 July 2017 made them less attractive for many individuals, a TTR pension can still be worth considering for someone close to retirement age wanting to scale back their work hours while minimising the drop in their income.

Find the super fund that’s best for you by comparing funds with Canstar.

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This advice is general and has not taken into account your objectives, financial situation, or needs. Consider whether this advice is right for you. Consider the product disclosure statement (PDS) before making any financial decision. For more information, read Canstar’s Financial Services and Credit Guide (FSCG).

The Superannuation Star Ratings in this table were awarded in March 2019. View the Canstar Superannuation Star Ratings Methodology and Report. These results are general advice only and not personal financial advice. Ratings are only one factor to take into account when deciding whether to make an investment. Consider the Product Disclosure Statement before making a purchase decision.

Superannuation products displayed above that are not 'Sponsored' are sorted as referenced in the introductory text to the table. Canstar may receive a fee for referral of leads from these products. See How We Get Paid for further information. Products displayed above do not include all products/providers and may not include all features relevant to you. Please note that all information about performance returns is historical. Past performance should not be relied upon as an indicator of future performance; unit prices and the value of your investment may fall as well as rise.

Performance information shown is for historical periods up to 31/12/2018 and investment options noted in the product information. Performance figures shown reflect net investment performance, i.e. net of investment tax, investment management fees and the applicable administration fees based on an account balance of $50,000. Performance information is provided by Rainmaker Information Pty Ltd ABN 86 095 610 996 AFSL 461816 (www.rainmaker.com.au) which provides general information on superannuation. Performance data may not be available for some products. This is indicated in the tables by a note referring the user to the product provider, or by no performance information being shown.

Any advice on this page is general and has not taken into account your objectives, financial situation or needs and is not a recommendation for your particular circumstances. Consider whether this advice is right for you. Consider the product disclosure statement before making a purchase decision. You may need financial advice from a qualified adviser.

Performance, fee and other information displayed in the table has been updated from time to time since the rating date and may not reflect the products as rated. The performance and fee information shown in the table is for the investment option used by Canstar in rating of the superannuation product.

Investment returns of superannuation products: Canstar considers the annual investment returns of a product’s default investment option, including the default life-stage option where applicable. Where a product does not have a default investment option, annual returns for the investment option with the highest funds under management (FUM) and a 60-80% growth asset allocation are used.

Annual cost includes administration fees and indirect costs (including the investment fee, performance fee where applicable, and any other indirect management costs). This cost is calculated based on the super balance specified and the investment option considered in the 2018 Superannuation Star Ratings, which is the default investment option (including default life-stage options). Where a product does not have a default investment option, annual fees for the investment option with the highest FUM and a 60-80% growth asset allocation are used.

Performance and Investment Allocation Differences
• Fee, performance and asset allocation information shown in the table above have been determined according to the investment profile in the Canstar Superannuation Star Ratings methodology that matches the age group you selected.
• Some providers use different age groups for their investment profiles which may result in you being offered or being eligible for a different product to what is displayed in the table. See here for more details.
• SunSuper’s allocation of funds for investors aged 55-99 differ from Canstar’s methodology – see details here.
• The Sunsuper for Life product may appear in the table multiple times. While you will not be offered any single investment option, this is to take into account the different combinations of investment options SunSuper may apply to your account based on your age. For more detail in relation to the SunSuper for Life product please refer to the PDS issued by SunSuper for this product.
• QSuper sets different balance ranges, resulting in a different investment mix in some cases to that resulting from Canstar’s methodology – see details here.
• Investment profiles applied initially may change over time in line with an investor’s age. See the provider’s Product Disclosure Statement and in particular applicable age groups for more information about how providers determine their investment profiles.

Please note that all information about performance returns is historical. Past performance should not be relied upon as an indicator of future performance; unit prices and the value of your investment may fall as well as rise. The results are general advice only and not personal product advice.

Canstar is an information provider and in giving you product information Canstar is not making any suggestion or recommendation about a particular product. The information has been prepared without taking into account your individual investment objectives, financial circumstances or needs. Before you decide whether or not to acquire a particular financial product you should assess whether it is appropriate for you in the light of your own personal circumstances, having regard to your own objectives, financial situation and needs. You may wish to obtain financial advice from a suitably qualified adviser before making any decision to acquire a financial product. Please refer to the product disclosure statement (PDS) and Canstar’s Financial Services and Credit Guide (FSCG) for more information, and read our detailed disclosure, important notes and liability disclaimer.

This advice is general and has not taken into account your objectives, financial situation or needs. Consider whether this advice is right for you. Consider the product disclosure statement before making a purchase decision. Canstar provides an information service. It is not a credit provider, and in giving you information about credit products Canstar is not making any suggestion or recommendation to you about a particular credit product. Statistics referenced on this page have been verified by Canstar Research. Research provided by Canstar Research AFSL and Australian Credit Licence No. 437917.